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Sales Tax Over State Lines

There seems to be a lot of confusion about sales tax for internet sellers. I currently collect sales tax for Michigan since my small business resides in Michigan. My concern is not collecting tax for out of state buyers. My store sells Parrot Toys and business is exploding. I want to get ahead of this issue before it could potentially become a problem.

When I physically go out of State to Ohio for shows, I collect sales tax based on their rules but online sales seem to be a bit more confusing regarding taxes.

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Michael J. Fleming | Window Shopper |
3/15/2013 - 2:38 pm

For MIT_MAN's specific situation the state of OH has an administrative safe
harbor exists that states if you attend trade shows and have no more than 7
instances of nexus creating activity and less than $25,000 in sales during
the year than you do not have a collection responsibility. However if you are
there more than 7 times and the total of your sales is greater than $25,000
then you have nexus and should register to collect sales tax. If this is the
case then your online sales would be taxable in OH. If you attend trade shows
in other states you may have nexus their also depending on each state's
statutes or regulations. For some other activities that may require you to
collect and pay tax in other states please see my other response to your
question.

Michael J. Fleming | Window Shopper |
3/15/2013 - 2:28 pm

Some good answers here but when we talk about nexus and physical presence for
sales tax it is not limited to store, office or warehouse. States have really
pushed the envelope and you may be surprised at what some states assert, and
in some cases the Supreme Court has confirmed, create nexus.

For example even the activities of third parties such the use of independent
sales reps, even if they don't work for you exclusively, has been visited
twice by the Supreme Court(Scripto 1960, Tyler Pipe 1987)and confirmed as
nexus creating activities.

In addition many states claim that just a one or two day visit into a state
by one of your employees or a third party acting on your behalf can create
nexus for you. Some states claim trade show attendance is nexus creating.

When it comes to online sellers the three activities that they usually don't
take into account when determining if they might have a sale tax collection
responsibility are drop shipping, fulfillment centers and the use of
affiliates. Some states will consider the mere act of a company doing
shipping and handling for you a nexus creating activity. When using
fulfillment centers you now have inventory which is property in another state
and usually considered to be nexus creating. Affiliates are when there is a
website that links back to yours and you pay a fee or commission for sales
generated. Some sates have passed specif laws to cover this type of
relationship while others say there current statutes cover this.

Also I often hear companies say well I collect sales tax when my company
does(fill in the blank) but I don't know about my internet sales. In general
if you have performed an activity that created nexus for you and requires you
to become registered then all of your sales into that state would be taxable
including online, telephone and mail order.

NicoleD | Former Moderator |
6/9/2010 - 8:35 am

If you do not have a business presence in a particular state (like a store, office, or warehouse) you are not required to collect sales taxes from online sales in that state. In legal terms, this physical presence is known as a 'nexus.' Each state defines nexus differently, but all agree that if you have store or office of some sort, a nexus exists. If you are uncertain whether or not your business qualifies as a physical presence, contact your state's revenue agency.
read more about Collecting Sales Tax Over the Internet on Business.gov

BizResearcher | Window Shopper |
6/9/2010 - 8:43 am

Show Replied Text…

If you do not have a business presence in a particular state (like a store, office, or warehouse) you are not required to collect sales taxes from online sales in that state. In legal terms, this physical presence is known as a 'nexus.' Each state defines nexus differently, but all agree that if you have store or office of some sort, a nexus exists. If you are uncertain whether or not your business qualifies as a physical presence, contact your state's revenue agency.
read more about Collecting Sales Tax Over the Internet on Business.gov

With the current economic crisis, more states are considering taxing internet and catalog sales made to residents of their state, so be sure to stay abreast of changes in laws. If you were to receive a large order to be shipped to California, for example, you might want to quickly check the CA state taxation department's web site to find out if they have made recent changes to their laws that would require you to charge sales tax.

MarkAse | Contributor |
6/9/2010 - 8:14 am

I can't offer you specific advice based on your business, but I'll simply tell you what we've done as far as sales tax, excise tax etc in regard to my wine business.
After talking to a wine compliance officer, they were able to help us to learn which states we need to charge their own sales tax for (Oregon, Nevada etc etc) of which the list is rather large. Of course there are a few exceptions, a lot of it depends on where you and your buyers feel that they take pocession of the product.